The Party’s over: China’s Endgame _Gordon Chang

May 22nd, 2011

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The Party’s Over: China’s Endgame

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Gordon G. Chang

On October 1 last year, China’s Communist Party celebrated the country’s National Day, marking the sixtieth anniversary of the founding of the People’s Republic. As they did ten years before, senior leaders put on a military parade of immense proportions in their majestic capital of Beijing. Like the Olympic Games in 2008, the parade was a perfectly executed and magnificently staged spectacle, but instead of international fellowship, the theme was the power of China’s ruling organization and the rise of the Chinese nation.

But did Beijing need two hundred thousand soldiers and school children to demonstrate its strength or ascendancy? The dominant narrative about China today is that it will, within a few short decades, become the preeminent power in the international system. Its economy, according to the conventional wisdom, was the first to recover from the global downturn and will eventually go on to become the world’s largest. Geopolitical dominance will inevitably follow.

How did this notion of Chinese supremacy gain hold? The answer is nothing more profound than statistical extrapolation. China was destitute when Deng Xiaoping grabbed power in December 1978. Since then, the country has averaged, according to official statistics, a spectacular annual growth of 9.9 percent. This rate, if carried forward, gives China the world’s largest economy in a few decades—2027, to be exact, according to a now-famous Goldman Sachs estimate.

So will ours be the Chinese century? Probably not. China has just about reached high tide, and will soon begin a long painful process of falling back. The most recent period of China’s fast growth began with Deng’s Southern Tour in early 1992, the event that signaled the restarting of reforms after the 1989 Tiananmen Square massacre. Fortunately for the Communist Party of China, this event coincided with the beginning of an era wherein political barriers to trade were falling and globalization was kicking into high gear, which set the table for a period of tremendous wealth generation.

Deng’s policy of gaige kaifang—a policy of “reform and opening to the outside world”—was perfectly suited to a period of spiking international income and liquidity. In the booming post–Cold War period, China attracted large sums of foreign capital that created hundreds of thousands of factories along China’s coastline and up and down the nation’s great rivers. Even more significant, Deng’s policies sparked the creation and development of private enterprises, in many ways the most important engine of China’s growth during the last three decades. In 1978, the state produced virtually all the nation’s gross domestic product. Today, that figure has dropped to a third.
In this period of sudden prosperity, it seemed that the country became the world’s biggest producer of just about everything. And as a result of its manufacturing strength, the Chinese central government accumulated foreign currency reserves that have been aptly called “the greatest fortune ever assembled”—$2.399 trillion, at last count. No country has a bigger stash. And no wonder analysts believe that China, having grown so large so quickly, has now acquired unstoppable momentum.

But the analysts and the conventional wisdom they peddle are wrong. China’s economic model, which allowed the Chinese to take maximum advantage of boom times, is particularly ill suited to current global conditions. About 38 percent of the country’s economy is attributable to exports—some say the figure is higher—but global demand at this moment is slumping. (Last March, the normally optimistic World Bank said the global economy would contract in 2009 for the first time since World War II and that global trade would decline the most it had in eighty years.) Globalization, which looked like an inevitable trend in early 2008, is now obviously going into reverse as economies are delinking from each other. So China is now held hostage to events far beyond the country’s borders.

As we saw in the Great Depression, the exporting countries had the hardest time adjusting to deteriorating economic conditions. That is proving to be the case now as well. China’s exports fell 16.0 percent last year, and forecasts show a weak export sector for at least the remainder of this year. As a result of declining exports and other factors, Beijing presided over the world’s fastest slowing economy. China’s economy, in fact, grew by about 15 percent in 2007, but fell to negative growth at the end of 2008.

Beijing stopped the precipitous decline with a $586 billion stimulus program, announced in November 2008. The plan created a “sugar high” as the central government flooded the country with money, but resulting growth will be short-lived. The state’s stimulus plan favors large state enterprises over small and midsize private firms, and state financial institutions are diverting credit to state-sponsored infrastructure. The renationalization of the Chinese economy with state cash will eventually lead to stagnation.

But the economy could fail before stagnation eventually sets in. Prime Minister Wen Jiabao, to fund his stimulus plan, has forced state banks to create the greatest surge of lending in history. One state manager, Lin Zuoming of Aviation Industry Corporation of China, publicly complained last April that central government officials forced him to borrow the equivalent of $49.2 billion from twelve Chinese banks, saying he did not know what to do with all the cash.

Government-mandated lending pushed unneeded funds into the Chinese stock markets, which caused an abnormal jump in prices; similar funds also flooded into the coffers of casinos in Macau, which had been languishing before the stimulus program. Predictions that Beijing’s plan might trigger the biggest wave of corruption in Chinese history now seem correct. And forced lending will undoubtedly create a mountain of bad loans because banks are shoveling funds to “beauty-show projects” that have little economic viability.

Chinese technocrats, goaded by a multitude of analysts and foreign leaders, have known for years that they would have to diversify the economy—steer it away from investment and exports and toward consumption. Yet Wen, in office since 2003, has not made much of an effort to do so. His stimulus plan targets the creation of infrastructure and aims almost entirely to boost industrial capacity even further, which would only aggravate the unbalance of the Chinese economy. Continuing with the old way of doing things will further reduce the role of consumption in creating prosperity, which has been sliding from its historical average of about 60 percent to about 30 percent today. That’s the lowest rate in the world, and it is continuing to decrease as the central government’s stimulus plan bolsters industrial production and exports.

So the Chinese economy, once in an upward super-cycle, is now headed on a downward trajectory. Beijing’s leaders had the opportunity to fix these problems in a benign period of growth, but they did not because they were unable or unwilling to challenge a rigid political system that inhibits adaptation to changing circumstances. Their failure to implement sensible policies highlights an inherent weakness in the system of Chinese governance, not just a single economic misstep at a particular moment in history.

Some scholars and China watchers nonetheless believe that Chinese authoritarianism, in the words of Andrew J. Nathan, may be “a viable regime form even under conditions of advanced modernization and integration with the global economy.” Recent Beijing leaders, Nathan tells us, have institutionalized themselves. “Regime theory holds that authoritarian systems are inherently fragile because of weak legitimacy, over-reliance on coercion, over-centralization of decision making, and the predominance of personal power over institutional norms. This particular authoritarian system, however, has proven resilient.”

But such praise of new bureaucratic mechanisms misses a critical point. The price of institutionalized Communist Party decisionmaking has been the diminution of the organization’s ability to govern. Why? China’s system is now weeding out the Mao Zedongs and even the Deng Xiaopings in order to prevent the rise of charismatic leaders, particularly someone like a Chinese Gorbachev. The individuals surviving this vetting, not surprisingly, lack the dynamism and ability of their bloodthirsty but imaginative predecessors. As the current leadership works to keep the lid on, small problems grow into big ones and big ones become gigantic. None of these problems has threatened the existence of the regime because increases in economic output in recent years have masked dislocations. But as the economy begins to contract, these problems may become too big to ignore—and perhaps too big to solve.

In addition to its outdated economic model, China faces a number of other problems, including banks with unacknowledged bad loans on their books, trade friction arising from mercantilist policies, a pandemic of defective products and poisonous foods, a grossly underfunded and inadequate social security system, a society that is rapidly aging as a result of the brutally enforced one-child policy, a rising tide of violent crime, a monumental environmental crisis, ever-worsening corruption, and failing schools and other social services. These are just the most important difficulties.

Worse yet, even if the Communist Party could solve each of these specific problems in short order, it would still face one insurmountable challenge. The economic growth and progress of the last three decades, which makes so many observers believe in the inevitability of China’s rise, is actually a dagger pointed at the heart of the country’s one-party state.

Change, in general, is tough for reforming regimes. As Tocqueville noted, it was rising prosperity that created dissatisfaction in eighteenth-century France and paved the way for revolution. These same trends played out more recently in Thailand, South Korea, and Chinese-dominated Taiwan. And they are at work right now in China itself.

Senior Beijing officials now face the dilemma of all reform-minded authoritarians: the economic progress that legitimates their leadership endangers their continued control. As Samuel Huntington taught us, sustained modernization is the enemy of one-party systems. Revolutions occur under many conditions, but especially when political institutions do not keep up with the social forces unleashed by economic change.

Beijing’s policies are widening the gap between the people, who are making a “kinetic dash into the future,” and their government, thereby ensuring greater instability. So it should come as no surprise that as China has grown more prosperous in recent years, it has also become less stable. As a people, the Chinese are not particularly obedient these days; they incite as many as 127,000 disturbances a year—perhaps more. Whatever the exact number, the political system is obviously having increasing difficulty channeling discontent as the Chinese people, believing in their rights and fearing their leaders less and less, wrestle for control of their future. As a prominent businessman told me last spring—smiling broadly as he sat in his spacious office in a Shanghai skyscraper—“No one fears the government anymore.”

And so, as the economy began to fail in 2008 and as factories closed by the tens of thousands, workers took to the streets, especially in the country’s export powerhouse, the Pearl River Delta of Guangdong Province. Protests have continued around the country. At the end of July last year, for instance, some thirty thousand steelworkers in the rust-belt province of Jilin fought with police and beat to death a top manager who had threatened large layoffs after a merger. The incident illustrates the trend that disturbances are becoming larger and more violent. In fact, demonstrators in the last few years have been using deadly force as an initial tactic against local authorities.

In good times, the Communist Party has been able to maintain its dominant role. But the real test of a political system is what happens when conditions worsen. After the abandonment of its economic ideology, the Communist Party made the continual delivery of prosperity its primary basis of legitimacy. But the future will not hold good times for the vast majority of the population. Thus, we are about to discover whether the regime can survive a downturn when decades of economic reform have weakened its mechanisms of control and made the Chinese people increasingly assertive and self-aware.

And even defiant. Expressions of discontent are expected in destitute places like Guizhou or Gansu or Ningxia, but now they are beginning to appear in prosperous cities like Beijing, Shenzhen, and Shanghai. One of the country’s most popular heroes—executed in November 2008—was a drifter who entered a police compound in Shanghai and killed six officers and wounded four others on the eighty-seventh anniversary of the founding of the party. In a development that did not make the evening news inside or outside the country, middle-class Chinese outside his trial chanted, “Down with the Communist Party!” and carried banners emblazoned with “Long Live the Killer.” Clearly, the country’s ruling organization has lost legitimacy, even among the relatively well-to-do in the important coastal cities.

Middle-class Chinese, the beneficiaries of decades of reform, now behave like activist peasants and workers whenever they think their rights are threatened. Yet Hu Jintao is repressing, not protecting, those rights. The humorless general secretary is now presiding over a seven-year crackdown on almost all elements of society, even the writers of karaoke songs, and the regime now attempts to control political speech more tightly than it did two decades ago. That is a sign of trouble to come. The party can censor and imprison, but it does so at the risk of creating even more enemies, both internal and external, and further delegitimizing itself.

So in the midst of all this turmoil, what will happen in China? The most important issue is whether the one-party system will survive, and despite everything, most observers feel it is secure. “China is facing enormous problems,” notes scholar Steven Jackson, but “this characterization has been true for the past 150 years.” David Shambaugh, another scholar, writes that China “is in a curiously ambivalent state of ‘stable unrest.’”

Political scientists generally support the idea that there can be smoke without fire. They argue that China lacks many of the factors that are thought to be requirements for revolutionary change. Because demonstrators in China today are directing their ire only against local grievances and have yet to form nationwide groups, for instance, most China watchers do not believe the People’s Republic is in any particular danger. Many correctly argue that all modernizing societies experience discontent. To understand China’s future, therefore, we have to distinguish change from instability, and instability from revolutionary unrest.

The economic and social transformation in China during the last sixty years has been accomplished with a velocity never seen before. And with Chinese people now talking to each other from one end of the nation to the other, “mass incidents,” the current government euphemism for large demonstrations, can have special significance. The protests in China today are occurring at a time of great stress in society. Worse, these disturbances are taking place as the party, updating its ideology, is trying to exchange the base of its support from peasants and workers to the middle class, a situation similar to the one that contributed to the failure of the Soviet Union. When China’s disaffected begin to realize their leaders no longer stand behind them, the unrest we see today could become revolutionary. The disruptions in China, therefore, can reflect more than just change or even instability—they have the potential to shake the mighty Chinese state and even bring it down.

Unfortunately for the Communist Party, this new restiveness comes as technology and instant communications are changing society. News travels fast in the modern Chinese state. During the first six months of last year, China’s citizens sent 382 billion text messages. No other country has more cell phone subscribers (there are 703 million of them) or Internet users (384 million, at last count). Cyber China, the most vibrant part of the most exciting nation on the planet, reflects the growing inquisitiveness of Chinese citizens about their society. Political dissent is sizzling on the Web—and readily available, at least most of the time. It is on the Internet that officials criticize their own government for corruption and businessmen post tracts on democracy.

Beijing has been more successful than any other government in creating a Big Brother–style Internet—with the help of American technology—but it is fighting a battle in which it will never be able to claim final victory. To consolidate his hold on the country, Mao divided up the Chinese people into small units and isolated each unit from the others. Now, in a modernizing nation, citizens are putting themselves back together with cell phones and laptops. On the Internet and in other forums, the Chinese people today are having national conversations for the first time since the Beijing Spring of 1989. Because so many share common grievances, demonstrations can erupt and engulf the one-party state.

The Uighur protests that erupted in Xinjiang last July, for instance, were sparked by news—which spread rapidly—of murders at a factory at the other end of the country, in Guangdong province. Worker demonstrations in early 2002 started in the northeast and spread to the center of China in a matter of days as laborers realized they shared common grievances. (“It’s the first time we have seen protests occur in the same industry, over the same issues, in different cities in China,” says Han Dongfang, a labor activist exiled from the mainland.) Telecommunications not only give new power to ideas but also supply new force to discontent. In a wired China, alliances can come together quickly, thereby making broad coalitions possible. As we are starting to see now, groups can be separated geographically yet still act in concert. Connected by phone or pager, people can meet at a moment’s notice for a common purpose.

We may, therefore, soon witness in China revolution by spontaneous combustion. Despite his belief that revolutions must be minutely organized, Lenin’s own state was eventually brought down not by a network of plotters but by an impromptu crowd. What we witnessed in Moscow—the disintegration of a state in a matter of days—later replayed itself in Manila, Lima, Belgrade, Kiev, and Tbilisi. Chinese people today may not have revolutionary intentions, yet their acts of protest at this unsettling time have revolutionary implications nonetheless.

As the acceptability of protest grows in China, the popularity of the Chinese government slides. “I don’t know anyone who believes in the party anymore,” one Shanghai resident said to me a few years ago. The strength of the Communist Party has been eroded by widespread disenchantment, occasional crises, continual restructuring, and the enervating effect of the passage of time. Although it is big, it is also corrupt, reviled, and often ineffective. In some parts of the countryside it no longer operates, having been replaced by clans and gangs with loose ties to officials. It’s doubtful the party even commands the loyalty of its own members. Many cadres are opportunistic careerists and many, for good or ill, disregard orders from the center. “Now, no Communist official is loyal to or will sacrifice for the party,” said democracy activist Peng Ming, just after he was released by the regime. “When I was in jail, the prison warden and guards were very respectful to me. Even when I criticized them, they would not criticize me back. Why? They said, ‘This regime will not last long. Who knows you won’t be our next leader? If we mistreat you now, you will come after us when you come to power.’”

People’s intense devotion to their rulers—evident during the eras of Mao and Deng—is noticeably absent from China today. The change in attitude has even affected the People’s Liberation Army, last line of defense for the party. Last July, in an extraordinary incident, junior Chinese officers openly complained about the corruption and failings of their country’s civilian leadership to their Russian counterparts during joint “antiterror” exercises.

If revolution is merely “a trivial shift in the emphasis of suffering,” as playwright Tom Stoppard once noted, the silent, slow-motion crisis of legitimacy in China could have real consequences. Anything can happen in a country filled with secret societies, revolutionary cells, private armies, illegal political parties, underground congregations, and clandestine triads. The risk for the regime is that one of these groups will launch an insurrection—some mass incidents already come close to rising to that level—or that some minor incident will trigger a fight that becomes a conflagration.

Under such a scenario, the party could be confronted with another million singing, shouting, chanting souls in Tiananmen Square. Deng Xiaoping preserved the regime last time by employing brute force, but it’s unlikely that a weakened party would have the ability to get away with another slaughter in the future. Ordinary soldiers probably would not kill fellow citizens on behalf of a regime that has lost the love and loyalty of most of its people.

Ultimately, rows of stern-faced Chinese soldiers goose-stepping through the center of Beijing on National Day tell us little about the government’s hold over the people. True, the one-party state is at high tide, but in the last thirty years, the country’s seemingly endless prosperity has fundamentally changed its people. The full extent of this change became clear to me in June 2008. I was in a dingy walk-up in my dad’s hometown, Rugao. It’s a backwater town in Jiangsu Province. I was trying to talk to a group of residents, some young and a few elderly, about the Olympics. Nobody wanted to discuss the Games, which were dismissed as just another government-staged event. All they wanted to hear was news from the American campaign trail. They wanted to hear about John McCain and Barack Obama. They wanted to hear about the workings of democracy. 

Gordon G. Chang is the author of The Coming Collapse of China.

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